From a new FCC report:
The most data-intensive 1% of residential consumers appear to account for roughly 25% of all traffic, the top 3% consume 40%, the top 10% consume 70%, and the top 20% of users consume 80% of all data
So the top 3% of residential users consume 40% of the data traffic. Is it fair or unfair to price by usage?
"The Rebalancing Of The California Economy: How Internet/Tech Jobs Are Spreading Across The State", Progressive Policy Institute, May 2013
"Data, Trade, and Growth" (working paper), Progressive Policy Institute, updated May 2013
"Regulatory Improvement Commission: A Politically-Viable Approach to U.S. Regulatory Reform", (with Diana Carew), Progressive Policy Institute, May 2013.
"Student Debt Investment Fund (SDIF): A Preliminary Proposal for Addressing the Student Debt Crisis", (with Diana Carew and Jason Gold) Progressive Policy Institute, March 2013.
"The Geography of the App Economy"(with Judy Scherer), South Mountain Economics LLC for CTIA, October 2012.
"Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy" Progressive Policy Institute, October 2012.
"Manufacturing in the App Economy:How Many Jobs Should We Aim For" (with Diana Carew), Progressive Policy Institute, May 2012.
"Hidden Toll:Imports and Job Loss Since 2007" (with Diana Carew), Progressive Policy Institute, March 2012.
"Measuring the Real Impact of Imports on Jobs" (with Diana Carew), Progressive Policy Institute, March 2012.
"Where the Jobs are: The App Economy" South Mountain Economics LLC (for Technet) February 2012.
"Scale and Innovation in Today's Economy," Progressive Policy Institute, December 2012.
Mandel on Innovation and Growth
That distribution seems similar to the proportion of tax revenue paid by the top income earners.
Also, it is fair to price by usage.
Is it fair or unfair to price by usage?
Fair — provided that the caps are a) stated and b) advertised in such a way that they’re obvious, rather than “up to 12 mb/sec!!!!!” with a note that says “more than 250 GB of data per month will get you disconnected” on page 16 of a 25-page small-print agreement.
Man, funny to see you mention this, as I’ve been pushing metered pricing for a while now. We don’t have flat-price electricity plans, where the power hogs down the street are subsidized by the frugal, electricity-sipping homes, yet that’s exactly what we have with bandwidth. The ISPs only went flat-rate because capacity was outstripping demand 5-7 years ago, but with the explosion of video over the last 3-4 years, they’re now paying the price for that gambit. That’s why all the cellular carriers recently stopped offering unlimited plans for new subscribers: they couldn’t do it anymore with mobile data usage taking off. Metered is the best way to apportion bandwidth and if you have dynamic pricing- think congestion pricing on roads or parking– you can deal with demand spikes the way the market has for millenia, by increasing the price when everybody tries to log on at 6 PM. As that smooths out the hourly usage of bandwidth, carriers don’t have to build out as much overhead capacity and the cost savings can be passed back to consumers. 🙂
TomB, by that rationale, perhaps we should also tax income earners by usage? I’ve heard this millionaire claim that he should pay less in taxes than most people, not many times more as he does now, because he uses a lot less than most people. Makes sense to me. 🙂
I wholeheartedly agree with pricing per usage, as long as the prices are clearly stated.
“I’ve heard this millionaire claim that he should pay less in taxes than most people, not many times more as he does now, because he uses a lot less than most people. ”
I disagree: a stable business environment, low crime, and the rule of law are of far more value to the “average” millionaire than to the “average” citizen in general.
Is it fair to quote a maximum speed and not deliver on it? I only get 2/3rds of the rated speed at the best of times. It seems if you want to charge for usage you need to differentiate between bandwidth and quantity. Some may want quantity and time, some quantity but not time, some will want time but not quantity, and a few will want neither. The first should pay the most but likely at lower rates. The second should pay less since it is not priority. The first two are bulk users and cover costs. The latter two should pay less, but at higher rates.
The top 10 percent have the fasted connections so they are already paying a premium.
Any notion of a general scarcity of bandwidth is spurious. Backbone providers are already sitting on huge amounts of dark fiber. Google has created a huge fiber network out of unused capacity and Allied Fiber plans a nationwide ring network to serve many rural areas.
Data congestion at the level of neighborhood nodes may be valid in some areas, but it is for the most part an artificial legacy of the cable monopolies. That sort of spotty and variable scarcity shouldn’t be allowed to drive national pricing trends.
We tend to want to revise tax policy during busts as if recessions go on forever (and we do the same thing during booms). Let’s not engage in the similar kinds of short-term thinking when it comes to our general plans for data networks. Rather, let’s evaluate what we actually have, and what we realistically expect to have in the intermediate-term future, and create responsible policy based on those facts.
Pricing is already tiered. I believe the facts point toward pricing that is at least somewhat flatter than current models. Let’s not forget that inhibiting cutting-edge applications through punitive pricing would also inhibit innovation and slow adoption curves.
I also think that an intelligent national investment in neighborhood fiber nodes would yield greatly increased telecommuting activity, which in turn would allow more efficient physical delivery of goods for which there is no other option (among other benefits).
CompEng, and which of those does the govt provide? 😉 It’s the poor to lower class who need the police to keep off each others’ backs (the rich already hire private security) and the govt does a horrible job at business and law, very likely hurting commerce much more than it helps. Just like with the internet, I’d like to see us move to a usage model for govt services, where you pay for what you use, just as we’re moving to wireless tolls on roads these days. Administration costs are minimal with new technology, no reason it can’t be done.
Lord, maximum speed is maximum speed, they carefully avoid delineating throughput. 😉
yep, the top 10 percent are not paying more than twice what the remaining 90 percent are paying but they are using bandwidth at that ratio, so your trivial point is irrelevant.
Chris, dark fiber has to be lit, often at considerable expense, and we’re not talking about backhaul but the last mile. “Artificial legacy of the cable monopolies”? And that changes what about the actual scarcity itself? What part of the above data points to flatter pricing? Do you also believe we should replace the income tax with a flat tax? 😉 Punitive pricing? What a joke! No, what you want is for all of us to subsidize your “super-cool” 720p MySpace videoconferencing app, that degrades performance for the rest of us so we can’t even check our email or use simple services like VoIP. I’m not sure what model you have in mind for “neighborhood fiber nodes” but the future is open fiber networks as instituted, of all places, in Utah.
I’m in the top 10% (not sure where: it’s not worth my time to look), and I know I can’t afford private security on top of the taxes I already pay! But certainly, police provide a deterrent to keep robbers from trolling in ripe neighborhoods like mine. So you can haggle with the price or quality of police relative to other solutions, but not that they provide a service which is used by more than the poor and lower class.
The government may not do a great job at defining business law, but it has a huge advantage: it provides a standard, and that standard is quite competitive on the world stage. Although Microsoft offers a mediocre operating system and office suite given the costs of developing them, the majority of personal and business users still find it worth their while to use them because they provide an acceptable standard. This allows them to save on training, interoperability costs, the cost of researching alternatives, etc. For a lot of businesses, Windows+Office is the best choice despite any disadvantages.
A pay-per-usage model of government services is an interesting model: I’d be curious to see it at least explored further. Liberal sentiment will certainly keep that from happening, though.
Of course you could afford private security, it just would take the form of a private cop patrolling the entrances or streets of your neighborhood, rather than the more expensive “guy outside your house.” 😉 Ask the govt cops how often they have to patrol your “ripe neighborhood,” I bet it’s practically nil: they spend most of their thought and time in the poor neighborhoods, keeping the rabble off each other. 😉 What you call a “huge advantage” of govt law, I call parasites leeching off businesses and consumers. Most businesses want nothing to do with their “law”: it’s only the losers like Apple who go running to the govt when they see they’re about to lose, suing HTC because they can’t or won’t sue Google for Android. Microsoft’s software is actually a perfect analogy for the govt’s imposed law and services: a substandard product forced on businesses. 🙂 At least with Microsoft, there are companies that can choose OpenOffice voluntarily, that’s often not an option with the govt and its dumb laws. Business essentially pays a Microsoft tax for their mediocre software, which may be only 1-2% of govt taxes but it will be destroyed just the same. Who cares what liberals want? Their socialism has been thoroughly discredited for most people, which is why stuff like this is happening. 🙂
“I bet it’s practically nil: they spend most of their thought and time in the poor neighborhoods, keeping the rabble off each other.”
Sadly, I have to grant that point. I was hypothesizing that poor people don’t rob the affluent because they’re afraid that law enforcement will rally better around the affluent (deterrent by FUD). But I have to admit that’s largely hypothesis on my point.
“Most businesses want nothing to do with their “law”: it’s only the losers like Apple who go running to the govt when they see they’re about to lose, suing HTC because they can’t or won’t sue Google for Android.”
Most businesses want nothing to do with law until something (anything) goes wrong, and then they whine to the government about it. That’s more proof of their shortsightedness than anything else.
“At least with Microsoft, there are companies that can choose OpenOffice voluntarily, that’s often not an option with the govt and its dumb laws.”
There is some competition: there’s a reason so many companies incorporate in Delaware, for example: law taxes and good business courts (or at least pro-business courts). But despite the high costs of incorporating in America, a lot of companies do it anyway, because they like having a clear standard to follow, especially regarding intellectual property, even if the standard is in fact pretty mediocre. So I guess I’m taking the glass-half-full perspective on this issue.
Thanks for the link, but if I want a clear-headed and intellectually honest perspective on anything, Fox news is about the last place I would normally look. 😉
Not only is it a hypothesis that the poor don’t rob the rich because of govt cops, it’s contradicted by the fact that most of those rich neighborhoods hire private security anyway, though who knows if that’s mostly for show. 😉 Most businesses don’t want anything to do with the law because they’re much better off with their private contracts and arbitration, rather than the law made up by idiotic, pandering congressmen. What you call Apple’s “shortsightedness”- what should they have done, gotten a law passed to bar Google’s entry into smartphones earlier? 😉 – is more accurately described as I did, the losers going crying to mommy govt. What you don’t seem to realize is that when you setup such monopoly regulators, whether the patent office or the SEC, corrupt business like Apple is only so happy to pay them off for a leg up on their not as corrupt competition. Yes, thankfully there is some competition between state and local govts, not so much for the federal govt. It is true that even the US federal govt is better than many other national govts, but that’s like celebrating being king of the midget trolls. 😀 The link was to Fox Business, not Fox News, and if you want a “clear-headed and intellectually honest perspective” of anything from the idiot box, Stossel is pretty much your only hope. 🙂
“Most businesses don’t want anything to do with the law because they’re much better off with their private contracts and arbitration”
Except that they can be bought off even more easily than the government, so they don’t always work so well when you’re smaller than the other guy.
“What you call Apple’s “shortsightedness”- what should they have done, gotten a law passed to bar Google’s entry into smartphones earlier?”
Of course not. The crying to mommy government bit of course does occur, but I kind of like the fact that when they discover McNeil factories with mold in their medical manufacturing facilities, the government can push a recall. The free market should be able to punish companies sufficiently to provide the same function, but history shows that’s generally not the case because information is so poor. Of course, with the internet, consumers have a better shot, but still.
“but that’s like celebrating being king of the midget trolls.”
That actually sounds kind of cool. 🙂
“The link was to Fox Business, not Fox News, and if you want a “clear-headed and intellectually honest perspective” of anything from the idiot box, Stossel is pretty much your only hope.”
Then I’ll give it a listen and see what I think.
Nope, private arbitration can’t be bought off because they depend on their reputation to secure further work and there’s plenty of competition. Govt on the other hand is a cornucopia for the not so “small guy” because they can buy all the bureaucrats and politicians, who know that there’s little competition for their jobs. What makes you think McNeil wouldn’t have recalled all their products anyway, given their huge liabilities in such a situation? The free market has historically punished such firms with future losses, as they lose their reputation for putting out a good product, not sure in what alternate reality you see otherwise. The internet merely amplifies this long-standing word of mouth and makes it even more powerful. Yes, govt and its backers would find being a midget troll to be cool, 😉 it’s precisely those types of grotesque ends they aim for.
“The free market has historically punished such firms with future losses, as they lose their reputation for putting out a good product, not sure in what alternate reality you see otherwise.”
Before modern medical tech, it was really the wild west with regard to medical technology. Good information on what medicines and procedures worked was hard to find. There were a lot of small snake-oil sales, a lot of junk even in respectable medical science, and reputation wasn’t all-important because nobody had a sterling reputation: anyone who showed up with a degree was as good as the other guys as far as most people could tell. Markets work well in the process of good cheap information, and not well otherwise.
“Nope, private arbitration can’t be bought off because they depend on their reputation to secure further work and there’s plenty of competition.”
I’m not so sure about that. But then, I guess the complaints of arbitration corruption have been mostly in business vs. employee, when business is always paying the bills. Some of that will be employee whining, but not all.
“Yes, govt and its backers would find being a midget troll to be cool, 😉 it’s precisely those types of grotesque ends they aim for.”
Ooh, snarky.
You’ve been sold a bill of goods about “modern medical tech,” as there are more snake-oil salesmen operating in medicine today than anytime in the past. The reason is the heavy govt involvement in medicine, everything from how patients run to quacks in desperation because the crazy FDA won’t even let them elect to try scientifically-driven experimental procedures to how the crazy govt-driven third-party payment system pays everyone by “procedure,” no matter what the results. Let me apprise you of something, “good information” on what works is still hard to find. Why would you need that when your insurance will reimburse your doctor for whatever “treatment” he chooses and he’ll “figure out” what’s best? Reputation is and has always been important, even today, but the current govt licensing and third-party payment systems try to dilute the important role of reputation with their useless credentials. Markets work especially well where there isn’t cheap and well-known information, as the resulting high prices patients are willing to pay for cutting-edge work is the only proven mechanism for surfacing new information. The fact that you’re unaware of this speaks to a deep ignorance on how the market works on your part. Business doesn’t pay the bills in employee arbitration, both parties do. Of course, there’s some whining about private arbitration, that has nothing to do with whether it’s a far better system than your preferred govt arbitration.
Hi Ajay,
Always like to read your posts here.
Where scarcity is merely local, and market forces exist to address it, then the scarcity should be addressed locally. But that doesn’t require the rest of us to pay. If anything, local rate wars and infrastructure build-outs should be contagious between markets. Where’s the creative destruction?
Maybe the rural electrification program can shift from underwriting the ongoing financing of established power co-ops to addressing this problem in areas that lack dynamic market forces. It’s an issue that closely resembles the original mandate of the REA. I’d rather build bridges than subsidize river crossings.
Personally, my bandwidth usage is pretty low. I tend to favor pages like this with lots of text. Text is cheap. I remember participating in the “bandwidth conservation” movement in the late 1990s. But who worries about keeping their web page under 10k now? Time marches on. And I doubt we’ll spend the least bit of time worrying about 720p videoconferencing in 10 years. So why take steps that will deter its usage in 5 years? That’s what I mean by focusing on intermediate-term realities and reasonable projections.
It’s true that electrical usage at data centers will grow with increased content delivery. That seems like a more fundamental issue. Insert your favorite arguments for our power grid and generation systems here.
I do think the tax code is more of a problem than the tax rates. Why do we still use the revenue collection system as a home for social engineering and industrial favoritism payouts? Those are two different entirely different functions and conflating them has many unintended consequences. The tax code is a thicket in which politicians hide their pet projects, and then they beat the electorate about the head with its thorny branches each biennium.
I understand the need for a measure of tiered pricing when it comes to data – but let’s not get carried away by pushing a slow-growth model on the consumer. The internet is still an area of innovation and opportunity – so wouldn’t that be like raising taxes in a recession? I stand by my “punitive pricing” wording.
Let’s take an Aristotelian approach: first divide these problems into their constituent parts and then only then try to evaluate and solve them.
Quick followup: that Utah initiative looks very interesting. Pooled resources, and real competition. Thanks for pointing it out.
Chris, who is requiring the rest of us to pay? That’s what current flat-rate plans do, by forcing the grandma down the street to subsidize my bit torrent usage. The last mile is constrained in most markets, better to apportion that contested bandwidth with metered pricing. There’s no creative destruction because govts prohibit it, we could have something like this. 😉 I’d rather the federal and local govts got out of the way and let the market do its thing. 🙂 You may prefer text but most don’t. If they were like you, we wouldn’t be talking about this at all. 😉 I’ve never even heard of bandwidth coservation. 🙂 We won’t worry about 720p videoconferencing in 10 years, we’ll worry about 3D video then, 😀 as the network will never be good enough and we’ll always come up with heavier uses. As you admit, there are always new uses and they overload the network: why not take steps to properly plan for such usage? Metered pricing only “deters” adoption by making customers who are using disproporationate bandwidth pay for their use, I have no problem with such deterral. Bandwidth is not constrained on the backhaul, yet why is it that practically every datacenter only offers metered pricing to companies that host there? Because it is a much better way to apportion that bandwidth.
I’m for a flat tax too but I actually asked the wrong question: the real analogy to flat pricing for internet is with flat fees, ie we all pay a $20k flat fee no matter how much our income or how much we use. Is that what you want? What’s “slow-growth” about metered pricing? Slow growth happens when companies can’t get paid to upgrade their network capacity, so we all get stuck on slower networks. Metered pricing has no analogy to taxes because the money goes to the business, not to the govt to shit it away. You stand by the silly claim of punitive pricing because like most techies, you want somebody else to pay for the bandwidth and the network and not pay your fair share. That’s not going to last.
I find your case based on consumer fairness rather compelling. I wish we paid for our digital cable by usage (or ala carte) – our bill would probably be about $3 a month.
You also have a good counter-argument about growth: maybe I favor growth for content creators and software developers, but at the expense of certain utilities. What’s the proper balance? I’m not sure I can claim to know that.
Chris, that’s exactly what’s coming, metered for everything. 🙂 And that’s what will drive growth, as metered pricing for content and software is simply micropayments. 😀 In thinking about metered pricing for bandwidth, I simply worked backwards from the obvious need for micropayments for content/software and realized such metering was the best model for bandwidth too. Imagine if you could pay for wifi everywhere you went automatically with micropayments? Use a couple hundred MBs, pay 5-10 cents transparently. Wifi providers would spring up everywhere once they could be easily compensated, providing competition for the overpriced cellular data networks. Note that when the cellular carriers recently dropped their unlimited plans they were able to drop monthly prices also, as the light users didn’t have to subsidize the heavy users as much anymore. As for cable pricing, that’s exactly what’ll happen with internet video, you’ll pay 25 cents for every show you watch, rather than being forced to pay for a subscription up front like you do now. Basically, metered pricing is the best model for almost everything, but it hasn’t been cost-effective for many services till the widespread deployment of the PC and the internet. Thankfully now it is. 🙂
One problem with metered pricing is that there is no effective infrastructure to monitor and control data volume (if you pay for volume not for time). But maybe the “invisible hand” will bring it about once we go metered.
One thing that may happen is long faces on the fancy web services and ad monetization side. I observe how web pages let’s say outside academia get larger and larger and are overloaded with increasing amounts of plugins, Javascript, video/animation, facebook/twitter/etc. and other boilerplate content that in cases overwhelms the actual “value” content and which can lead to unbelieveable download volume. Even without metered pricing, it sucks time and power, and clogs the channel (esp. with mobile devices and wireless in general). Once people look at data volume (if they do, which is not a foregone conclusion), there are some obvious targets to cut.
And with a lot of the content being outsourced or otherwise coming from a variety of sites, you get DNS and connection overhead and delays. Often such third party content uses large templates and a lot of forth and back exchange of dynamic data. Then some pages/websites constantly update the display leading to additional traffic. And so on.
This is not to complain but highlight “hidden” sources of data volume. It seems that there is little energy spent on resource conservation (in terms of keeping content to a minimum), as that’s not where the cost structures lead. It is similar to the days of cheap gasoline where cars were not designed for fuel efficiency. Maybe that will change when data volume becomes a concern.
And on a more basic point, I already have the probably cheapest plan that can be had (residential DSL), with an OK data rate. I don’t think there will be cheaper plans, as much of my fee probably goes to maintaining fixed cost structures of the equipment and service. When others get to pay more for more usage, I will not get a lower price and probably not a better data rate. What will probably happen is that some “marginal” power users will “upgrade” to same-priced plans and go from throttled rate to volume based.
Of course, all that is for wired. Wireless is an entirely different story.
Metered pricing infrastructure would be pretty trivial to implement; the problem is that people are too ignorant of economic efficiency to implement it, not that it’s hard to do. There are UI issues with making sure consumers understand when they’re spending money on and how much, but that’s not going to matter much as the amounts aren’t that big. As for dynamic data sucking up bandwidth, that’s a latency issue not a volume issue, as text like javascript or twitter is a minimal consumer of bandwidth. As for DSL prices, they can always be lowered, as bandwidth capacity is inevitably part of the calculation. If metered pricing is done dynamically based on the time of day, it smooths out the hourly bandwidth curve because you’ll then schedule your downloads of TV shows and movies on iTunes overnight, rather than paying more to get it right away. That allows ISPs to keep the same capacity for longer, because it’s being more efficiently used and immediately leads to lower prices, as they can pass those savings back to consumers. If there’s true usage pricing and you don’t use much data, of course you’ll get a lower rate, just like the grandma down the street who will pay almost nothing for her light email usage with some occasional photos. Right now she and the 90% are subsidizing the power user 10% like me. 🙂 Wireless is the exact same story, only the capacity issues are even more pronounced and there’s a bit more competition.
“Metered pricing infrastructure would be pretty trivial to implement … There are UI issues with making sure consumers understand when they’re spending money on and how much”
My wording was perhaps unfortunate, that’s what I meant, receiver/consumer side metering and bandwidth/volume negotiation. On the ISP side measuring data volume/bandwidth is probably already implemented.
It depends on the pricing models what makes sense. One thing I could imagine (conceptually) is having “virtual quality of service channels” or configurable channel priorities on my side. For example, I could route batch downloads through a bandwidth throttled channel, or a channel that is prioritized lower than the interactive web surfing channel (but with enough residual bandwidth so the download is not disconnected), that lower than real time channels and so on. Channel throughput/priority could be set on time of day and/or you could have download queuing/timing solutions etc.
“but that’s not going to matter much as the amounts aren’t that big”
I don’t know, a lot of small transactions can add up to something large. If you exchange a few hundred kilobytes extra a few thousand times per month (let’s say checking “status” on your favorite websites throughout the day, every day), it will add up. Likewise when for many pages you visit, ad animations/video/sound start playing in the background. If history is any guide, if you have a big pipe, your pipe will be stuffed. How it affects your fees again depends on the pricing model (cent per kilobyte, volume tiers, …).
“As for DSL prices, they can always be lowered”
No they cannot (indefinitely), there are costs that scale with the number of customers. All the equipment has to be maintained, upgraded, scaled up, etc., and individual billing costs money too. Every other day I see AT&T service vans in my street presumably working on the local switches or (dis?)connecting customers. It also is a matter of competition. Here in the “Silicon Valley”, the last mile is basically owned by AT&T and Comcast. There are other providers of DSL, but they have to go through AT&T’s wires and even with last mile access regulation there are residual costs.
“If there’s true usage pricing and you don’t use much data, of course you’ll get a lower rate, just like the grandma down the street who will pay almost nothing for her light email usage with some occasional photos.”
That’s the part that I’m disputing most. As long as there are “power user” plans, fine grained usage based schemes (where you essentially pay per byte) will be subject to adverse selection – small time users will select the paygo plan that (under your interpretation) will not pay for the fixed cost. My current plan runs me $25 per month. I don’t think you can go substantially below that. Broadband is subject to economies of scale as many other things. You also cannot buy 10 GB hard disks at 1/10th the cost of a 100 GB model.
“Wireless is the exact same story, only the capacity issues are even more pronounced”
Which is why it is not the same story – the capacity is physically more constrained than broadband. You can run individual wires/segments in neighborhoods and scale the backbone out with parallel fiber lines essentially as much as you want, but with wireless you can only transmit so much data within let’s say a 100 meter radius without frequency bands getting into each other’s way. When more than a critical mass of people congregate in an area (let’s say in and around the local coffee shop, book store, or library), there are limits on the data volume. Time will show.
The consumer side metering and negotiation is what’s easy to implement, it’s only getting users to understand the new model and associated UI that might provide a bit of a speed bump. Yes, there are lots of service level possibilities which is why it’s so frustrating that the ISPs think the only alternatives are owning the entire service, like with cable TV or cellular, or becoming a dumb pipe. They could create a smart pipe instead but apparently they’re too dumb to realize this. OK, let’s see how much it adds up to: 500 kilobytes * 3k/month * 50 cents/GB is 75 cents. Most people would gladly pay that to have good status updates on people and things they care about. 🙂 People already pay 10 cents/kWh for electricity and they don’t agonize over it every time they turn the lights on, even though it adds up to a bill in the hundreds of dollars. Video won’t play in the background when the software vendors have an incentive to shut it off, because users complain about being forced to pay for that bandwidth.
Yes, DSL prices can be lowered almost indefinitely, as you can turn everything metered. Don’t make any support calls? No support fees. Send lots of support emails? Pay for them with fees, same with scaling or billing. ISP competition is a big problem right now, but I already pointed out the solution to that above. You can always roll the fixed network costs into metered, just make the per GB rate a little higher. This is much preferable to what they do now, rolling the much larger variable network costs into the fixed monthly prices. Flat vs metered pricing changes nothing about economies of scale and people rent hard disk space on servers in 10 GB increments all the time. You’re not buying a 10 GB hard drive when you pay for internet, you’re doing the equivalent of renting 10 GBs of space on a server. You do realize you’re arguing for metered pricing even more in cellular networks when you point out it’s more constrained, right? 😉 In scarce markets, metered makes even more sense, 🙂 to properly apportion that scarce bandwidth.
I’m not arguing against metered (by volume or data rate) pricing for *scarce* resources, where the variable cost of additional capacity is significant. For wired installations, I don’t believe this to be a big problem, when AT&T and Comcast can push both internet and lowres/HD TV (which is what, if not digital video?) through the same wires. With TV, a large portion of the charges are for “programming” (content), not for the delivery of the content.
But then somebody who watches or downloads a load of video content may have different ideas of “reasonable usage” and acceptable data rates or volumes.
Aside from that, with the kind of competitive landscape we have, I’ll rather take flat rate, thank you very much, as I don’t trust these guys very far. My largest concern with metered fees is what is being metered, and how transparent it is what you pay for. With long distance phone service, there is an infrastructure, a legal framework, and some degree of checks and balances governing recording and billing of calls. Your phone company cannot just claim you made extra calls or for more minutes to bill you extra, as they are not the only entity who has all the information. With data traffic, there is no (useful) concept of connections, and there is basically no way of independently verifying or challenging the claims of your ISP about your data volume.
So for me it’s not so much a technical issue but one of trust/confidence.
The variable cost of additional capacity for the wired last mile is also significant, as it involves digging more fiber to move the last fiber node closer to the neighborhood, adding more backhaul links to that node, and upgrading to newer technologies like VDSL for the last hop. Even if weren’t, as in the datacenter, I’ve pointed out that metered pricing works best even there, which is why almost all servers are metered. It is true that ISPs who currently provide regular TV channels over their pipes can free up internet capacity simply by removing some of those TV channels: that’ll happen over time as internet video takes off and less and less people watch regular TV, just as broadcast is now going away. 🙂 TV charges might be dominated by content costs but that is irrelevant to this discussion, since TV and internet charges are split up on your bill anyway. I see, you don’t trust the ISP duopoly to do metered right, yet you trust them to fairly charge reasonable flat rates? If you don’t trust them, you don’t trust them: neither pricing method is going to stop them from screwing you. 😉
I am unaware of any third-party that verifies long-distance minutes, but that could certainly be implemented for internet metering also, if necessary. There may not be an independent way now, but it’d be pretty easy to have a bandwidth monitor on your main router or PC, that kept your own stats of what you used and when. I don’t think trust or confidence is the issue either as most electricity meters are notoriously suspect, yet people don’t make a fuss about that. The only issue here is that people are not used to the widespread metering that is going to be prevalent on the internet, because it was not technically possible in the past to the level it is today. That will take some time for people to understand, but given all the benefits that come with it, I think they’ll be glad to make that trade. 🙂
“yet you trust them to fairly charge reasonable flat rates”
I know what the monthly charge is, the advertised data rate, and what I can observe from my end (which is less but in the general ballpark). The only trust needed is that I will see action when they don’t deliver and I complain either to them or to their regulator.
With volume pricing, it all hinges on the price schedule. It makes little sense to make strong points on general principles. With electricity and water in my location you have a metered baseline rate and a higher rate when you go over the baseline quota (I don’t know whether there are several steps but there may be). While I cannot independently measure my usage, I have a general idea, it is eminently under my control, and pretty transparent – I know when the water is running and what devices are on. With data traffic I don’t have that transparency readily. Of course you could easily have a current/recent bandwidth gauge that shows you traffic stats, like some car models show running gas mileage stats, which may help to get a handle on what volume certain activities generate, if you are into that.
One thing that I expect would happen rather quickly when people see how much they pay for traffic is that they become more averse to ads and certain content types (ads or not), and more filtering solutions will be applied, and attempts to counter them at the provider/ad pusher side will me made. That could become rather interesting. But then again that hinges on the fee schedule.
A problem with infrastructure buildout is that it is not very smooth (within a smaller region) but a step function. That has to somehow be reflected in the price schedules, which probably will be progressive (that’s why I keep talking about tiered rates).
What you don’t know with your flat-rate plan is the actual throughput to your neighborhood node, which is why you inevitably get much lower speeds at peak times. When there’s dynamic metered pricing, you’ll know when all your neighbors have hopped on the network at the same time and will be able to bid against each other through the dynamic metered pricing. That’s how congestion pricing works. It also means that in off-peak times, such as overnight, prices will drop like a rock. So rather than downloading the latest 1080p video shows on iTunes in the evening, people will just schedule it overnight to avoid paying more, which smooths out bandwidth utilization of the network and makes it more efficient, as the ISPs don’t have to buy as much overhead capacity for the evening peak. This is what I keep talking about with smoothing out “the hourly bandwidth curve.” What you also apparently don’t know with flat-rate is that 10% of the flat-rate users are using 70% of the bandwidth, which is what Mike is trying to point out here, but they’re certainly not paying 70% of the costs. You are either one of the 10%, and thus want everybody else to keep subsidizing you, 😉 or you don’t care that your rates are much higher than they need to be. Well, there are a lot of people who do care, particularly cuz the 10% of bit torrent and HD video users also cause network disruptions when the normal 90% are trying to do their email and VoIP. Your “complaints” do nothing more than make the ISPs institute metered quotas, which guess what, is a step towards metered pricing. 🙂
You can always have different metered bandwidth rates past certain thresholds, mimicking electricity’s baseline rate and higher rates and reflecting the lumpy infrastructure costs you point out. To begin with, I think what we’ll actually see is bandwidth buckets and pure metered. Bandwidth buckets means buying 30 GBs/month for $15, 50 GBs/month for $20 and so on (with a side benefit that everyone gets the highest bitrate 🙂 ). People like you will go for this, because you know generally that you stay under a certain threshold and don’t want to think about metering too much. If you go over the threshold, you pay a metered rate for anything extra, but not a punitive rate, say 60 cents/GB. Other people know that their usage is very spiky and they’ll go pure metered, 70 cents/GB let’s say. If they only use 2 GBs in a month, they’ll only pay $1.40. Note that both are metered, the first group just won’t have to look at the meter as much. The “current/recent bandwidth gauge” that you mention now is what I have already mentioned repeatedly in terms of “UI issues with making sure consumers understand when they’re spending money on and how much” and “a bandwidth monitor on your main router or PC, that kept your own stats of what you used and when.” Most people have no idea how much water or electricity they have used two weeks into a monthly billing cycle, but they will with metered bandwidth. 😀 Ads are a minimal consumer of bandwidth so I don’t think they will be affected at all by metered bandwidth, but micropayments for content will kill ads off anyway, so I don’t think ads will be an issue regardless. 😉
“What you also apparently don’t know with flat-rate is that 10% of the flat-rate users are using 70% of the bandwidth, which is what Mike is trying to point out here, but they’re certainly not paying 70% of the costs. You are either one of the 10%, and thus want everybody else to keep subsidizing you, 😉 or you don’t care that your rates are much higher than they need to be.”
No, I’m quite aware of this. But with the competitive landscape (AT&T owning the last mile) and the fixed cost of equipment I don’t see how my base charge can go to zero. Whether I pay $25 per month flatrate or say $10+variable is then a minor quibble.
Compare also cell phone price models (with the caveat that I said wireless is a different story, whether it actually is or not) – you have the considerable monthly charge plans with “free minutes” which are used to distribute the significant price of the phone over 1-2 years, or you pay for the phone upfront with smaller but nonzero monthly charges, or you have prepaid cards with a substantially higher minute rate (and other tricks like hidden charges but the higher minute price is the primary feature). At the end of the day there is no way of hiding the infrastructure cost, no matter whether you operate the infrastructure or you are a reseller. Whoever offers zero or small enough base charges and meter charges based on “realistic” usage profiles will be subject to adverse selection, and the usage profiles will not materialize.
“Most people have no idea how much water or electricity they have used two weeks into a monthly billing cycle”
They probably will have a general idea whether their usage is within the normal pattern. Most people’s water usage is probably fairly stable – you tend to have the same number of water consuming daily routines. To a large extent, how much water you use is fully under your control.
Going from a $25 monthly bill to 30% of that, $7.50 a month, with better network performance is a big deal for most people, perhaps not for you. If we kicked the 10% of bandwidth hogs off, that’s exactly what would happen. Rather than kicking them off, metered makes them pay for what they use, which will no doubt make them change their behavior. All the cellular billing plans you list are metered, only the few, high-priced unlimited plans aren’t and you didn’t mention them. Yes, there is no way of hiding infrastructure costs, that is precisely why trying to do so with flat-rate plans is a bad idea. 🙂 You are the one advocating hiding costs through flat rates, not me. Precisely what adverse selection will materialize with metered plans? I see none as flat-rate is what suffers from adverse selection right now, as the 10% bandwidth hogs are fairly happy to scarf up all the subsidized bandwidth, which is why ISPs are finally starting to put in metered quotas. Most data usage will be within a normal pattern too, but when your pool starts leaking all of a sudden you have no idea how much water you’ll have to pay for at the end of the month. With metered bandwidth, that’ll never be an issue since the meter is always there. 🙂
I’m not disputing most of your points on principle. Much of this hinges on how things will play out, and I don’t claim I know that.
What I mean by adverse selection is that I expect that there will not only be metered plans, but that either the same provider, or different providers in the aggregate, will offer both “lite” (low base charge plus metered) and “volume” (high base and lower metered rate and/or “free units”) plans, and there will be self-selection of users into the respective plans. A provider that doesn’t target volume users with a good volume package but provides a competitively priced low-base lite package will disproportionately attract lite users whose usage will not pay for the infrastructure. This is similar to the adverse selection problem known from insurance. To avoid that problem, the “lite” package will be relatively overpriced to cover the fixed costs. I expect this to happen because bandwidth provision and maintenance is not a smooth linear function, you need power users to pay for the capacity, so you have to give them good deals. It’s the same as volume rebates in every other business. You also have industrial or other volume deals for power and water, “lite” residential uses pay higher rates per unit of usage. By that logic they are then overcharged.
But all of that is in the end speculation.
And my “flat rate” is data rate limited, so it is not a volume flat rate but a time flat rate really.
You make no argument for why a provider who only provides “low-base lite” packages “will not pay for the infrastructure.” It won’t pay for the same infrastructure as the ISP who caters to high-volume users but that’s by design. If you only have lite users you only need 30% of the capacity, savings which you pass back to the users. It is fascinating how you keep trying to shoehorn adverse selection into metered pricing, when it is well known that flat-rate right now has the biggest adverse selection problem imaginable! So the flat-rate plans you prefer have twenty times the adverse selection and here you are banging on about some imagined adverse selection with metered. It sounds like you are trying to construct a supposed problem to match a buzzword you’ve heard. The lite package will not be “overpriced,” it will be priced to cover all costs. You make no argument for how the capacity you put in for power users somehow magically puts you in a sweet spot with your “not a smooth linear function,” so I’ll take that for the nonsense that it is and move on. Lite users are not “overcharged” just because they pay a higher unit rate, they are paying for the higher fixed costs of providing them service through a higher unit rate. I have no idea what a time flat rate is, but considering your throughput will rarely reach the supposed peak data rates during the day, it’s much worse than that. 😉
I think the debate has become confused. At some point back you said or at least implied that when everybody pays metered, “lite” users will pay less. I don’t believe that to be the case. In particular I don’t believe that there will be (broadly available) plans where I will pay less for “lite” usage than with my current $25 “flat rate” (which is a time flat rate not volume flat rate).
As for the thesis that “lite” providers will pay less for infrastructure allowing them to pass through savings, I don’t believe that either. Only part of the cost of installing and operating equipment is bandwidth related (e.g. more expensive hardware and laying more pipe). Do you think operators, office staff, and maintenance techs working for the “half bandwidth” service will be paid half the hourly rate of their “full bandwidth” colleagues, and their office space, car fleet, materials etc. will cost half the price? There are economies of scale in installing the highest bandwidth, and then you need users to use it (if you are planning to charge for the bandwidth and not per month).
BTW, back in the days of dial-up internet you had pure (time) metered service (in Europe at least), but then the service was piggybacking on the phone infrastructure for which you paid a monthly base charge. There were various non-telco providers who either had fully metered or base plus metered, or metered with or without connection fee (and a lot of deceptive ads advertising the lower rates but hiding the connection fee). Often the same provider was offering different plans. For the experienced comparison shopper it became easy to avoid “to good to be true” rate offers or particular known companies, or more likely dial-in numbers as companies changed their names a lot after people caught on to their scams or offered their stuff under a lot of different brands. At some point it became difficult to find good pure-metered plans, possibly as the ads focused on minute rates and pure metered providers were “forced to adapt”.
In any case, as I said those are beliefs, and time will show.
I did the math on what light users will pay under metered two comments back, I can’t help it if you can’t follow such basic math. 😉 No, staff for a light ISP won’t get paid half but I suspect the cost of tripling the network capacity dwarfs those salary costs, so that’s not important. Aah, that familiar dumb argument, economies of scale, irrelevant since you have no clue where these magical economies apply for the last mile, as you cannot state a single example. Yes, dialup was time metered here too and it was a lot better since there was so much more competition back then. Not sure what your distinction is between “pure-metered” and “minute rates,” seems like the same thing to me, so I’m not sure what they were “forced to adapt” to. I fail to see any connection with the bandwidth metering we’re talking about.
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